A couple of weeks ago, Martin Wolf penned an FT op-ed proclaiming that the rescue of Bear Stearns “marked liberalisation’s limit”. We should remember Friday March 14th 2008, he said, for it was “the day the dream of global free- market capitalism died”:
For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over.
If the dream’s already over in financial services, food may be next. Here’s Javier Blas in the FT yesterday:
Governments are racing to strike secretive barter and bilateral agreements with food-exporting countries to secure scarce supplies as the price of agricultural commodities jump to record highs, diplomats and cereal traders say.
Wheat traders said yesterday that Ukraine was close to an agreement with Libya to devote up to 100,000 hectares of its own land to grow wheat for the north African country. Kiev-based analysts questioned the feasibility of such an agreement after the former Soviet republic restricted its cereals sales earlier this year.
The discussions follow a barter contract signed between Egypt and Syria in which Cairo agreed to supply Damascus with rice in exchange for secure wheat cargos. The Philippines also sought unsuccessfully last month to reach a deal with Vietnam to secure a large supply of rice.
Abdolreza Abbassian, an expert at the Food and Agriculture Organisation in Rome, said: “The use of bilateral agreements is on the rise.” Diplomats also say that the recent bilateral and barter contracts signal a broader trend.
Meanwhile, import substitution is back too. Just look at the Philippines, one of the world’s largest importers of rice – where prices have risen by up to 70 per cent over the last year. As the Manila Times set out last week, most of the Philippines’ rice comes from Vietnam, plus a little from Thailand – both countries that have reduced export levels as prices have shot up. The result: the Philippines’ equivalent of the FBI is raiding warehouses looking for rice hoarders, and political tension is rising.
As Roel Landingin reported in the FT a couple of days ago, part of the backdrop to the current situation is that the World Bank strongly encouraged the Philippines to place its trust in world markets for rice:
Less than a year ago, the authors of a World Bank paper on agricultural spending in the Philippines posed a question that now looks prescient: “Can the world market for rice be trusted?” Yes, was their unequivocal answer. And so the authors urged Filipinos not to worry too much about their reliance on rice imports…
Leocadio Sebastian, executive director of the government-run Philippine Rice Research Institute, said recent events had shown that the reasoning behind the World Bank’s recommendation “may not be true any more”. The World Bank study argued that rice production and prices were now more stable and that governments in rice exporting countries could not easily restrict foreign sales.
So much for that plan, as they say. Now, the talk in Manila is of self-sufficiency – within three years, no less: quite a reversal. And while this is not the sort of agenda calculated to gladden the hearts of economists at the Bank, it does appear to have the approval of the UN’s Food and Agriculture Organisation, whose advice to poor countries yesterday was to “rely more on local produce to cut food import bills and provide subsidised inputs to boost production”, according to ReliefWeb.
